Writing in American Banker earlier this week, former Federal Deposit Insurance Corporation (FDIC) Chairman William Isaac made the case that Fannie Mae and Freddie Mac are undercapitalized due to the Treasury’s so-called “Third Amendment” to the Housing and Economic Recovery Act of 2008, which sweeps the net profits from the two Government Sponsored Enterprises (GSEs) back into the government’s coffers while they remain in conservatorship.
While National Taxpayers Union (NTU) and Chairman Isaac may have some distinct views over the future of the GSEs, we do agree that the Treasury’s quarterly sweeps of Fannie and Freddie’s profits has created a perilous status quo for taxpayers.
Comprehensive GSE reform will not happen overnight. Thankfully, Congress has an easy solution at its disposal that can serve as a temporary insurance policy for taxpayers as long term housing finance reform is debated. In March, Representative Marsha Blackburn (R-Tenn.) proposed H.R. 1673, the “Enterprise Secondary Reserve Taxpayer Protection and Government Accountability Act of 2015.” If enacted, the bill would use Fannie and Freddie’s profits to create a reserve account upon which they could draw if they experienced significant losses related to their mortgage portfolios, rather than going back to the Treasury for another bailout.
In August, NTU led a coalition effort to encourage Congress to pass H.R. 1673 either as a standalone bill or as part of other legislation such as a financial services appropriations bill. Likewise, we have written about the bill and other possible alternatives to protect taxpayers in Forbes.